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How to Protect Future Generations Using Tax-Base Restrictions

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  • Antonio Rangel

Abstract

This paper studies how to protect future generations from expropriation and to induce optimal investment in intergenerational public goods (IPGs), by introducing constitutional restrictions on the tax base. The type of tax-base restrictions that we consider places limits on the tax instruments that the government can use to raise revenue, but not on the level of expenditures or debt. We show that the introduction of a constitutional amendment requiring that IPGs and debt be financed with land taxes makes intergenerational expropriation impossible and, for many cases of interest, induces optimal investment in IPGs. We also show that a weaker constitutional amendment requiring that IPGs be financed with land taxes, but imposing no restrictions on how to finance the debt, has a positive impact on IPGs, but not on expropriation. The paper also studies the political feasibility of these reforms. We show that the first reform is not politically feasible since it hurts current generations, but the weaker reform can induce a Pareto improvement.

Suggested Citation

  • Antonio Rangel, 2005. "How to Protect Future Generations Using Tax-Base Restrictions," American Economic Review, American Economic Association, vol. 95(1), pages 314-346, March.
  • Handle: RePEc:aea:aecrev:v:95:y:2005:i:1:p:314-346
    Note: DOI: 10.1257/0002828053828527
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    References listed on IDEAS

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    2. Hilber, Christian A.L., 2010. "New housing supply and the dilution of social capital," Journal of Urban Economics, Elsevier, vol. 67(3), pages 419-437, May.
    3. Marco Bassetto, 2009. "The Research Agenda: Marco Bassetto on the Quantitative Evaluation of Fiscal Policy Rules," EconomicDynamics Newsletter, Review of Economic Dynamics, vol. 10(2), April.
    4. John P. Conley & Robert Driskill & Ping Wang, 2019. "Capitalization, decentralization, and intergenerational spillovers in a Tiebout economy with a durable public good," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 67(1), pages 1-27, February.
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    6. Christian A. L. Hilber, 2017. "The Economic Implications of House Price Capitalization: A Synthesis," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 45(2), pages 301-339, April.
    7. Dao, Nguyen Thang & Edenhofer, Ottmar, 2018. "Feldstein meets George: Land rent taxation and socially optimal allocation in economies with environmental externality," Resource and Energy Economics, Elsevier, vol. 53(C), pages 20-41.
    8. Marko Koethenbuerger & Panu Poutvaara, 2009. "Rent taxation and its intertemporal welfare effects in a small open economy," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 16(5), pages 697-709, October.
    9. Parry, Ian W.H., 2007. "Are the costs of reducing greenhouse gases from passenger vehicles negative?," Journal of Urban Economics, Elsevier, vol. 62(2), pages 273-293, September.
    10. Gersbach, Hans, 2009. "Minority voting and public project provision," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 3, pages 1-40.
    11. Todd Sandler, 2009. "Intergenerational Public Goods: Transnational Considerations," Scottish Journal of Political Economy, Scottish Economic Society, vol. 56(3), pages 353-370, July.
    12. Springer, Job D. & Lusby, Aaron K. & Leatherman, John C. & Featherstone, Allen M., 2007. "Property Tax Lids and the Effect on Kansas," 2007 Annual Meeting, February 4-7, 2007, Mobile, Alabama 34887, Southern Agricultural Economics Association.
    13. Darong Dai & Liqun Liu & Guoqiang Tian, 2019. "Interregional redistribution and budget institutions with private information on intergenerational externality," Review of Economic Design, Springer;Society for Economic Design, vol. 23(3), pages 127-154, December.
    14. Hilber, Christian A. L., 2011. "The economics implications of house price capitalization a survey of an emerging literature," LSE Research Online Documents on Economics 58596, London School of Economics and Political Science, LSE Library.
    15. Gersbach, Hans & Kleinschmidt, Tobias, 2009. "Power to youth: Designing democracy for long-term well-being," Mathematical Social Sciences, Elsevier, vol. 58(2), pages 158-172, September.

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